There seems to be a lot of confusion about what Obama is doing, especially in regards to supporting the signature George W. Bush domestic agenda of high-end tax cuts. A lot of people seem to believe that Obama is confused, or a poor strategist, rather than he is simply carrying out exactly what he wants to do in regards to the domestic economy. Kevin Drum vents here.

One way to figure this out is to find a proxy for Obama’s political and economic instincts and beliefs and see how that person views the current climate. I think, and people who are better at this can correct me, Peter Orszag’s recent editorials for the New York Times have been the best barometer for what the Obama administration is currently doing in terms of the economy and budget. By extension, this is also the best barometer for what the Obama administration thinks are the important items to prioritize and fight for and the reasoning behind it.

Orszag was a director of the Hamilton Project, where then Senator Obama spoke at their opening. Orszag has left OMB and is rumored to be heading off to Citigroup, perhaps replacing Jack Lew who was at Citigroup and is now replacing Orszag at OMB. (Democrats!)

The nation faces a nasty dual deficit problem: a painful jobs deficit in the near term and an unsustainable budget deficit over the medium and long term. This month, the Senate will be debating an issue with significant implications for both — what to do about the Bush-era tax cuts scheduled to expire at the end of the year.

In the face of the dueling deficits, the best approach is a compromise: extend the tax cuts for two years and then end them altogether…Higher taxes now would crimp consumer spending, further depressing the already inadequate demand for what firms are capable of producing at full tilt. And since financial markets don’t seem at the moment to view the budget deficit as a problem…A benign bond market, however, is a luxury we won’t enjoy forever if we fail to tackle our long-term fiscal problem.

This is exactly the likely outcome of the debate, the outcome that the Obama administration has pushed for recently. Orszag believes we’ll have a bond market problem starting around 3 years from now if we don’t start austerity plans. He thinks that raising taxes on the rich right now is a bad idea economically and that there will be the political will, perhaps because of the bond market, to cut them in 2 years. Orszag write this in the New York Times, and by all accounts it is what the administration has set out to do. It’s not the problems I see, hence my disagreement.

In contrast to the medium-term fiscal outlook, which is not improved by the election results, Social Security reform may be. Erskine Bowles and Alan Simpson, the co-chairs of the fiscal commission due to report at the beginning of December, have both expressed a desire to restore solvency to Social Security. And Republican leaders have previously expressed a willingness to tackle the issue too.

Social Security is not the nation’s key long-term fiscal problem — health care is. (A column in Thursday’s Times will discuss health care.) But Social Security does face a long-term deficit, and a variety of reasonable reform plans (including one I wrote with Peter Diamond, a winner of this year’s Nobel Prize in Economics) have been proposed to address that deficit.

The left, though, seems adamantly opposed to restoring actuarial balance to Social Security now. I have trouble understanding this reluctance for several reasons: the key issue progressives had been concerned about — individual accounts within Social Security — has been definitively won in their favor (for now); they have a president from their party in office, which will not always be the case; acting now would allow changes to take effect more gradually, cushioning the blow; and establishing some credibility on out-year fiscal problems by enacting Social Security reform could open up (admittedly limited) running room to pass necessary additional stimulus legislation in the short run.

Given the left’s strident opposition to any serious discussion of Social Security reform, the issue will provide a key early indicator of the administration’s response to the election results.

This seems like what the administration believes. The real problem with saving Social Security, and by extension starting to get serious about the budget, is that “the left” are getting in the way. Bowles and Simpson are willing to have a discussion on this, and though they may not be perfectly on target they’ll frame the debate in a way that Democrats can work with. Heck even Republicans are interested! Everyone seems interested in doing what is responsible except the left, even though the cards are stacked in their favor. Orszag write this in the New York Times, and by all accounts it is what the administration has set out to do. This is not the problems I see, hence my disagreement.

· much more deficit reduction, enacted now, to take effect in two to three years; and

· an improvement in the relationship between business and government (the current antagonism, even if not the primary explanation for slow hiring and sluggish investment, does seem to be affecting hiring and other business behavior).

We need short term stimulus and medium-term deficit reduction, but it’s also important for overt and serious moves to improve the relationship between the business community and the government. Not just because of the importance to the Democratic party and brand, but also because it is increasing unemployment and keeping a full recovery from happening.

I don’t think this is the case. But Orszag write this in the New York Times, and by all accounts it is what the administration has set out to do post midterms.

It’s not hard to imagine Orszag and his fellow-travelers thinking that federal workers could do with making just a bit less, or that structural problems in education and skills are really driving unemployment, the latest rumor we are hearing from the Obama economics team. The political rationality behind this should be examined more critically – what’s neo about this kind of neoliberalism? – but these writings put into context that these policy solutions, rather than being the result of perpetual screw-ups and bad bargaining, are precisely the outcomes that one could imagine them wanting to bring into the world.

We need short term stimulus and medium-term deficit reduction, but it’s also important for overt and serious moves to improve the relationship between the business community and the government. Not just because of the importance to the Democratic party and brand, but also because it is increasing unemployment and keeping a full recovery from happening.

Can you expand on this? Why is a closer relationship with the business community important? Obama has given them everything they want. The disaster for the consumer called HAMP. The South Korean Free Trade agreement. And the Chamber of Commerce just spent $100 million to defeat Democrats last month. What do you think the DLC has been doing the past 25 years? Are you admitting that we are all at the mercy of big business?

It’s not hard to imagine Orszag and his fellow-travelers thinking that federal workers could do with making just a bit less, or that structural problems in education and skills are really driving unemployment, the latest rumor we are hearing from the Obama economics team.

If this is true, then we are indeed doomed. I guess Obama would rather listen to an idiot like Orzag, who doesn’t care one bit about the Democratic Party, instead of Paul Krugman.

You paint a picture of the Obama Administration doing what many people do in times of stress – attempting to retain their belief in a set of key principles, even in the face of substantial evidence that some of these principles come into conflict with one another, or may just be wrong.

I as far as domestic/economic policy is concerned, the guiding principles for the Administration have been:

a) Government is not the problem: it is not the only solution, but it can be an effective partner and occasional leader in addressing important problems (health care, financial reform, emergency actions like TARP/Chrysler & GM bailouts, tax policy….)

b) Among the choices Government can make in addressing important problems, moderately progressive fixes to the system will likely be more successful than root and branch overhaul (bank nationalisation, financial reform, health care, immigration….)

c) Washington is “broken” because the two parties have not successfully negotiated solutions in good faith. Although moderately progressive fixes are the best option, the Administration should be ready to make concessions to Republican senators and representatives who negotiate in good faith with Democrats to achieve bipartsian solutions.

Most progressives, I think, agree with a), have their doubts about b), and are torn between anger and despair at the Administration’s stance on c). It’s the Lucy and the football problem: how many times will the Administration look for cooperation from the Right, and end up on the wrong end of the nightly news?

The Right, of course, has issues with a), disagrees with b), and sees c) as a trap. I think congressional Republicans, from the narrow perspective of increasing the number of congressional Republicans in 2010 and beyond, have played a weak hand extremely skillfully. I agree with your overall premise, though: the Administration’s actions aren’t just attributable to poor tactics: they shed light on overall strategic choices.

It’s not my opinion that Obama needs to mend relationships with the business community. Or at the very least, mending relationships won’t help growth or employment to any significant degree.

Andrew,

I’m curious as how the narrative unfolds, but the best one is that the Democrats in Congress screwed this up instead of Obama. They had the Republicans right where they needed them going into the midterms. Now everyone is scrambling.

I think the “Democrats in Congress screwed up” argument is a bit inside baseball. Sure, Harry Reid had to try to keep Joe Lieberman, Ben Nelson and other “centrist” Dems inside the tent peeing out. But a Senate supermajority was only in place for about eight months or so. Obama’s preference has always been to get bills through the Senate with some Republican votes: McConnell’s been skillful enough to deny him this on many key issues, including (most recently) tax cuts for Chicago Law School professors and others.

My sense has been that Obama thought that by offering 2/5 of a loaf to Republican priorities (for example, tax cuts in the early 2009 stimulus package) he could gain 5 or so votes. The health care bill taken forward was the most conservative of 5 introduced by House and Senate Committees, and Max Baucus worked for months (with the White House’s blessing) to bring 3 Republican senators on board – and as we know, he got one vote to move the bill from committee, and zero on the Senate floor.

Sarkozy is supposed to have mused “est-il faible?” after meeting the new US President. I think the question you raise is similar – is Obama being pushed, in headlong retreat, off publically stated positions, or is he falling back to prepared positions?

Andrew:
The problem is that Boehner and McConnell have been telgraphing they have no serious intention of compromising with Obama at all. Have you seen the new tax cut deal? It’s a travesty. And Obama is supposed to get Democrats excited in two years by repeatedly caving to McConnell and Boehner? For what? We’re being held hostage by the minority. I don’t think that’s what the Founding Fathers envisioned.